16. EU-UK trade agreement (TCA)
- UK left EU on 31 December 2020
- UK-EU Trade and Cooperation Agreement agreed 24 December 2020
- From 1 January 2021, TCA applied provisionally and came into force 1 May 2021
- Tariff-free, quota-free UK-EU trade
- Not all GB goods exports to EU are tariff-free
- TCA creates many new trade barriers for goods and services
- Controls on food, other animal and plant imports from EU still to be introduced
- Exclusion from EU programmes (eg Erasmus, Horizon) is major disadvantage
- Windsor Framework refines operation of Northern Ireland Protocol
- First five-year review of the implementation of the TCA in 2026
- Economic benefits from refinement will be small
- UK Trade and Business Commission ‘Blueprint for Policymakers’
- 114 recommendations to improve trade relationship
- Major economic benefits come from rejoining Single Market and Customs Union
Click here for summary of Brexit FactBase.
The UK and the EU announced the trade deal on 24 December 2020 and published the principal documents on 26 December 2020. The initial text was provisional and a ‘scrubbed’ version replaced it at the end of April 2021.
From 31 December 2020:
- the UK lost all rights and obligations of being an EU Member State
- its nationals and businesses no longer benefit from free movement of people, goods, services and capital
- the UK no longer contributed to the EU budget or benefited from EU funding programmes, policies and international (trade) agreements
From 1 January 2021, the new EU-UK relationship is very different to that of a Member State. It comprises a:
- trade agreement for free, fair, sustainable trade, with zero tariffs, zero quotas
- broad economic, social and environmental partnership
- new partnership for citizens’ security
- common governance framework to ensure a sound and lasting partnership
The Trade and Cooperation Agreement has provisions to ensure a level playing field and respect for fundamental rights. It also confers rights and obligations on the EU and the UK, ‘in full respect of their sovereignty and regulatory autonomy’. In EU terms, the TCA is an ‘Association Agreement’.
Click here for a summary of the main changes.
Certain parts apply to the Crown Dependencies, the Channel Islands and Isle of Man. However there are no provisions for the UK’s Overseas Territories – a separate treaty is being negotiated with Gibraltar.
Northern Ireland remains subject to the provisions in the Withdrawal Agreement (as refined by the Windsor Framework). This creates a customs and regulatory border between GB and NI (the ‘border in the Irish Sea’). The TCA does not govern trade in goods between the EU and NI, but goods entering NI from GB count as imports. There are facilitations for goods movements between GB and NI. And, in terms of services, NI is subject to UK rules.
Approval and scrutiny
For the EU
The TCA was treated as an EU-only agreement since it only covers areas under EU competence, either exclusively or shared with Member States (MS). The Commission chose Article 217 TFEU as the legal basis for the conclusion of the TCA. This required unanimous agreement in the Council and consent of the European Parliament.
- Commission proposed to apply the Agreement on a provisional basis, for a limited period of time until 28 February 2021.
- On 29 December, the Council of 27 Member States unanimously approved signature of the Agreement and its provisional application from 1 January 2021.
- On 30 December in Brussels, the President of the European Council, Charles Michel, President of the European Commission, Ursula von der Leyen, signed the TCA.
- European Parliament had been asked to give its consent by the end of February. However, on 10 February the Commission proposed an extension of the provisional application to 30 April, which required the approval of the European Council and the TCA Partnership Council.
- As a last step, the Council adopted the decision on the conclusion of the Agreement and, on 28 April, the European Parliament approved it.
For the UK
- Government published the European Union (Future Relationship) Bill on 29 December. The purpose of the Bill is to implement the provisions of the TCA, the Nuclear Cooperation Agreement and the Security of Classified Information Agreement in domestic law.
- On 30 December the Bill passed the House of Commons with 521 votes to 73.
- On 30 December 2020 in London, the Prime Minister, Boris Johnson, signed the agreements in London.
- Late on 30 December, the House of Lords approved the Bill, which became law after receiving royal assent.
The government fast-tracked the implementation Bill through both houses. As a result, neither the Commons nor the Lords were able to scrutinise this very important legislation properly before approving it. Similarly, the devolved nations had no time to give their legislative consent.
MPs were asked to read the deal (published 26 December) and the Bill (available 29 December) in time to debate and vote on the Bill on 30 December.
The government chose not to apply the legislation provisionally to allow time for scrutiny (unlike the EU). However, Parliament still needed to satisfy itself that the Bill’s provisions and delegated powers are appropriate. The Lords Select Committee on the Constitution recommended on 29 December that:
“the House considers how best to review the Trade and Cooperation Agreement, and conduct post-legislative scrutiny of the Bill to implement it, and to undertake such scrutiny at the earliest opportunity. The quality of such scrutiny will be an early and substantial test of a Parliament possessing a significant tranche of returned powers.”
The House of Commons Committee on the Future Relationship with the European Union, chaired by Hilary Benn, met on 29 December. The Committee published a useful high-level report on the contents of the deal. The Committee was dissolved on 16 January but reported on 21 January with recommendations for future parliamentary scrutiny of the TCA (see Governance section).
House of Lords Select Committee on the Constitution, European Union (Future Relationship) Bill, 29 December 2020
House of Commons Committee on the Future Relationship with the European Union, The UK-EU future relationship: the Trade and Cooperation Agreement Report, together with formal minutes relating to the report. 29 December 2020
House of Commons Committee on the Future Relationship with the European Union, The shape of future parliamentary scrutiny of UK-EU relations, 21 January 2021
The TCA is the main part of a package of agreements reached on 24 December 2020. The package includes several Joint Declarations on important issues for further cooperation such as financial services regulatory cooperation, subsidies, asylum, road hauliers and the declaration of adequacy decisions.
Following provisional application, the final agreements entered into force on 1 May 2021. Together with the Withdrawal Agreement, which includes the Northern Ireland Protocol, the TCA is now the basis for the relationship between the UK and the EU.
- Withdrawal Agreement
- Trade and Cooperation Agreement
- Security of Information Agreement
- Civil Nuclear Agreement
The European Commission also published a set of complementary documents on 24 December:
- A new relationship, with big changes – Brochure
- A new relationship, with big changes – Overview of consequences and benefits
- Infographic – comparison with EU membership
- From the UK referendum to a new Trade and Cooperation Agreement – timeline
For those who kept score, compared to the Political Declaration, the big omission was the chapter on Foreign Policy, Security and Defence. Civil protection and illegal migrations are also missing from Thematic Cooperation. Otherwise, the TCA covers most of the items listed in the Political Declaration.
However, the deal’s coverage is often thin or absent. For example, there is no chapter on financial services. There is also no mutual recognition agreements to reduce duplicate checks on certain traded goods.
Trade and Cooperation Agreement
The EU-UK Trade and Cooperation Agreement (TCA) has seven Parts and many annexes::
- Common and institutional provisions
- Trade, transport, fisheries and other arrangements
- Law enforcement and judicial cooperation in criminal matters
- Thematic cooperation
- Participation in Union programmes, sound financial management and financial provisions
- Dispute settlement and horizontal provisiosn
- Final provisions
See Appendix F for the detailed content list of the TCA. Within Part 2 on ‘Trade, transport, fisheries and other arrangements’, the main sections are:
- Trade in goods
- Services and investment
- Digital trade
- Capital movements
- Intellectual property
- Public procurement
- Small and medium-sized enterprises
- Good regulatory practices and regulatory cooperation
- Level playing field and fair competition and sustainability
- Road transport
- Social security coordination and visas for short-term visits
- Other provisions
Governance of the TCA
An institutional framework governs the TCA with binding dispute settlement and enforcement mechanisms. The framework covers the whole TCA as one agreement. The EU and UK parliaments have established a Parliamentary Partnership Assembly as a forum for MEPs and MPs to exchange views on the arrangements and other issues, but with limited powers. It met for the third time on 24 July 2023.
A Partnership Council (PC) governs the TCA, supervised by a UK minister and a European commissioner. This Council can make decisions that will bind both the UK and EU. Indeed, the PC has the power to decide to amend the TCA. However, its recommendations have no binding effect on the UK or the EU. James Cleverly (Foreign Secretary) is the UK co-chair of the PC. European Commission vice-president, Maroš Šefčovi, is the EU co-chair.
The PC’s deliberations may be open to the public or confidential, if the parties choose. The Council spends half its time in London and half in Brussels. There is also a secretariat, based in London and Brussels.
A Trade Partnership Committee assists the PC and supervises the work of the Trade Specialised Committees (see Figure 16.2).
- PC has 19 Specialised Committees whose remits relate to specific chapters of the agreement.
- Four Working Groups assisting and supervised by Specialised Committees.
- UK and EU representatives jointly chair each committee and working group.
- New committees and working groups may be established.
For legally binding decisions, the UK parliament has a smaller role than it did for EU legislation. When the UK was an EU member, UK laws to implement EU directives had to go through the UK parliament, either as statutes or statutory instruments. Under the TCA, the UK parliament only has the right to be “informed” of the decisions. This means that the UK parliament has less control than it had with EU membership.
The TCA obliges the EU and UK to consult “domestic advisory groups” and “civil society organizations” on the implementation of the TCA and any supplemental agreements. This includes non-governmental organisations, business and employer organisations, and trade unions. The EU and UK must “promote interaction between their respective domestic advisory groups, including by exchanging, where possible, the contact details of members of their domestic advisory groups.”
The House of Commons Committee on the Future Relationship with the European Union, chaired by Hilary Benn MP, ceased to exist on 16 January. Its final report, published on 21 January, made recommendations for future parliamentary scrutiny of the TCA. Commenting on the report, Hilary Benn said:
The reports’s main practical ideas were:
- Parliament must be kept informed about the work being done in new bodies established under the TCA and the Withdrawal Agreement;
- Government should come forward with proposals for future scrutiny as soon as possible;
- Liaison Committee should be able to access papers relating to crucial UK-EU meetings;
- The new framework for inter-parliamentary relations should be established without delay;
- UK administrations should co-operate in implementing the new UK/EU relationship.
The Rt Hon Hilary Benn MP is now co-chair of the independent UK Trade and Business Commission whose purpose is to make recommendations to the UK government about but not limited to;
- trade deals with Europe and the world
- support for small and medium sized businesses across the UK
- regulatory frameworks and regimes both domestically and internationally
- strengthening diplomatic relationships with global trading partners.
In May 2023, the Commission published an extensive Blueprint for policymakers for improving UK trading relationships.
Figure 16.2: Institutional arrangements for the EU-UK TCA
Professor Simon Usherwood has created a further diagram that combines TCA governance with that of the Withdrawal Agreement (see Figure 16.3).
Figure 16.3: Governance architecture of the EU-UK relationship
The Specialised Committees (or the PC) are the first ports of call for dispute resolution. If the Specialised Committee or the PC cannot resolve a dispute, they can refer it to an independent tribunal (convened for each dispute), which has to issue a ruling between 130 and 160 days after the date of establishing the panel.
Some disputes cannot be referred to the independent tribunal:
- return of cultural property
- small and medium-sized enterprises
- subsidy controls
- regulatory co-operation
- law enforcement cooperation
- security co-ordination.
Instead, the UK and the EU can use traditional trade remedies in the form of tariffs or suspend parts of the TCA. This may include cross-retaliation – suspension of unrelated areas of the agreement. There can also be retaliation under the TCA for breaches of the Withdrawal Agreement.
There is likely to be more secrecy over disputes than before. Dispute resolution and the arbitration process are subject to absolute and discretionary rules of confidentiality. With the ECJ, cases usually took place in open court. Now, dispute resolution can take place behind closed doors.
There are important changes in law and its applicability. Decisions of the PC will only bind the UK and EU as a matter of international law. They do not apply to other legal persons (individuals or businesses) apart from rights to social security and, on the EU side, for criminal law. This also means that individuals and business have no legal redress under the treaty. The special EU legal regime, with its creation of rights enforceable by citizens and businesses ends for the UK. EU law will still influence what the Partnership Council can agree to, but in the background. The ECJ only has a role in relation to litigation over EU programmes. On these points, the TCA differs markedly from the Withdrawal Agreement.
Rebalancing relates to the level playing field (LPF) provisions. If the EU feels that the UK (or vice versa) diverges enough from its new rules to cause a material impact on trade or investment, it is entitled to impose rebalancing measures. These could include tariffs and withdrawal of other benefits under the TCA.
There are non-regression clauses in the TCA but no obligation for the UK to increase standards in line with future changes in EU law for: labour, social standards, environment and sustainable development. However, the UK and EU make extensive commitments in the TCA to respect key regulatory principles across a wide range of areas, such as: state aid, labour and social standards, environment and sustainable development, taxation, consumer protection, intellectual property, public procurement, competition law and merger control. This is likely to constrain the ability to diverge.
There is a short time to implement rebalancing measures. For example, for significant changes in state aid, environment or employment law, which have material impacts on trade or investment, the complaining side has 19 days after notifying the other party to impose sanctions. Then it has 49 days if the other party refers the matter to the tribunal.
From 1 January 2025, either party may seek a review of certain aspects of the agreement if it believes that the other party has changed its own laws in a way that justifies a rebalancing of the TCA.
Termination and review
There are many ways in which the parties may terminate the TCA. Either party can give 12 months’ notice to terminate the agreement (and without cause). In addition, some sections of the TCA have time limits, such as the energy chapter (scheduled to terminate on 30 June 2026). Other chapters can be terminated at shorter notice than one year, such as those on aviation, road transport and fish (all nine months’ notice). Note that termination of the fish chapter automatically terminates the trade, aviation and road transport chapters.
Please note that it is not true that the whole TCA terminates automatically if the UK leaves the European Convention on Human Rights (ECHR). However, either side has the option to terminate the criminal law part if the UK or a Member State leaves the ECHR.
The TCA provides for an EU-UK review of the implementation and operation of the whole agreement every five years (from 1 January 2026). In addition, the Specialised Committees (such as for SPS) review aspects within their remits on an ongoing basis and may propose TCA changes to the Partnership Council. There will also be a vote in Northern Ireland on the Protocol in 2025.
The European Commission’s information on the deal includes this comparison with EU membership which highlights the main changes.
Figure 16.4: Main changes in EU-UK relations
This section highlights some of the implications of the TCA, providing examples of trade barriers and their observable effects.
The main implication is economic damage through reduced UK-EU trade. The UK left the EU Customs Union and the Single Market on 31 December 2020, losing the benefits of frictionless trade with the EU. Even with the TCA, this has caused a dramatic drop in UK-EU trade and significant economic harm to the UK.
Modern trade often takes place through a complex global network of goods and services producers, who work together to create the final package for the consumer. Tariffs are one barrier but the trade barriers that matter more (and cost more) involve, for example, regulations or testing procedures, barriers to the movement of people providing services, restrictive rules of origin and infringement of intellectual property rights. Unfortunately, the TCA focuses mainly on removing tariffs and quotas rather than other trade barriers.
To demonstrate the effects, we bring out examples in relation to:
- Trade in goods
- Automotive (example)
- Trade in services
- Financial services
- Professional services
- Movement of people
- Digital trade and data adequacy
- Participation in EU programmes
These are, of course, high-level summaries and should not be taken as guidance.
Trade in goods
All exports from the UK to the EU are subject to customs formalities and must comply with import rules:
- Must meet all EU standards; and,
- Must undergo regulatory checks and controls for safety, health and other public policy purposes.
The EU has mutual recognition agreements with other countries, but they do not feature in the TCA. These would avoid double testing of a product by the UK and the EU in sectors such as pharmaceuticals, machinery and toys, Under the TCA, neither party formally regards checks on goods by the other party as adequate.
Similarly, veterinary equivalence does not appear in the TCA. So, the TCA does not reduce or eliminate inspections on food products, which account for many of the checks on imports at entry. However, the EU has several such agreements with, for example, Canada and New Zealand which greatly reduce inspections.
|Table 16.1: Examples of impacts of TCA on goods trade|
|New barriers - examples||Effects - examples|
|Goods – exports to EU||Customs declarations (275 million up from 55 million – cost ~£15 billion)||Loss of VAT refunds (e.g. Burberry)||Extra costs|
|Rules of origin procedures (cost ~£6 billion)||Data protection issues||Higher prices|
|Tariffs on non-qualifying goods||Regulatory conformity testing (often in EU)||Border delays|
|Sanitary and Phytosanitary (SPS) checks on agri-food||Supply chain disruption|
|Goods – imports from EU||UK customs declarations for all goods imports were phased over 2021 and 2022||UK tax authorities require complicated documents||Reduced attractiveness of UK market|
|Additional UK import checks (eg SPS) on agri-food are due in early 2024, after being postponed five times||Lack of readiness by EU traders||Smaller EU exporters ignore UK
|Safety and security checks will apply from late 2024||Reduced choice for UK producers and consumers|
Rules of origin
Tariff-free access under a preferential trade agreement depends on compliance with rules of origin (RoO). To be free from tariffs, exporters have to provide a ‘statement of origin’ that shows the product content originates mainly from the UK and EU. Tariff-free trade involves tariff bureaucracy.
Under the TCA, EU and UK traders have to meet RoO comparable to those that apply to EU and UK trade with other trading partners. As a result, the rules and procedures are already familiar to some UK business operators, but not to those that have traded exclusively within the EU, particularly SMEs. Restrictive or complicated RoO make it hard to certify products sourced from different countries.
The TCA includes mechanisms to facilitate compliance with RoO:
- In principle, UK and EU content should be treated equally as local content. In the jargon this is called ‘full bilateral cumulation’, which means traders can aggregate product costs and value added originating in the UK and EU.
- Exporters may self-certify the origin of the goods, making it easier for traders to prove product origin and reduce red tape.
- There was flexibility in documenting proof of origin during the first year. This allowed businesses to benefit from zero tariffs and quotas despite the short time between agreeing and implementing the TCA.
Understandably, a UK importer cannot simply import products from a non-EU country and ship them on to the EU tariff free. It can, in general, process and combine them with other UK and EU goods and ship the final product tariff-free, provided only a small proportion is non-local.
There is an important wrinkle in RoO that is causing serious problems in food supply chains. Goods that arrive in the UK zero tariff from the EU but are not altered in any way and re-exported to the EU do not count as UK-origin. As a result, they face the full EU Common External Tariff on returning to the EU. Food and agricultural products attract some of the highest tariffs. This is emerging as a major issue for goods shipped to GB distribution hubs. They attract full EU import tariffs when they return to the EU and, as a result, suppliers are being forced to cancel the delivery of products to EU customers.
Automotive sector – example
Car manufacture is a good example of how goods and services trade inter-relates in complex supply chains. It is a highly competitive sector that has long used just-in-time manufacturing techniques. According to Toyota, there are about 30,000 components in a modern car, coming from many suppliers and typically combined with embedded services, such as satellite navigation systems, and direct additional sales of services, such as maintenance and financing.
The serious implications of the TCA are new non-tariff barrier costs and delays. The TCA creates big new burdens for auto makers on UK-EU trade: customs declarations, certification costs, audits to prove that RoO requirements are met, border delays disrupting just-in-time systems etc. These extra costa and delays may make UK car makers uncompetitive and less attractive to EU suppliers and customers, even if their exports are free from tariffs.
Car exports to the EU avoid tariffs if they have at least 55% local content – materials coming from the UK and the EU. There is full bilateral cumulation – UK and EU components count equally as local content. However, the TCA does not allow ‘diagonal cumulation’ with third countries like Japan, China and Turkey. Industry experts say this should allow most UK car makers to avoid tariffs on exports to the EU, unless they import high value components from outside the EU (and reduce the local content %). For electric cars, the 55% is being phased in over six years from 40% in 2021. This may be challenging if high-value parts, such as batteries, are imported from outside the EU.
Trade in services
UK service suppliers lost their automatic right to offer services across the EU as of 1 January 2021. The UK no longer benefits from free movement of persons and free provision of services.
This means UK service suppliers no longer enjoy the ‘country-of-origin’ approach or ‘passporting’ whereby authorisation from one MS gives access to the whole EU Single Market. After 31 December 2020, if a UK business is authorised to export services to one Member State, it can no longer assume it may export to any other. As a result, service exporters must look at the regulations in each Member State in which they want to trade.
As a result, UK suppliers:
- may have established a commercial presence in the EU to continue serving EU customers; and
- must comply with the varying host-country rules of each Member State.
The table below provides examples of the new barriers for three of the UK”s most important services exports to the EU.
|Table 16.2: Examples of impacts of TCA on UK services exports to EU|
|New barriers - examples||Effects - examples|
|Financial services||Loss of financial services passport – cannot provide services from UK to EU customers||‘Equivalence' or EU market access to derivatives clearing houses in London expires end-June 2025||International banks use commercial presences established in EU (Paris, Frankfurt, Dublin etc.) instead of UK|
|FinTech requires physical establishment||UK has less EU equivalence than US, Switzerland, and Singapore||Business, investment and jobs move out of UK|
|UK loses out on future EU growth|
|Reduced tax revenue from financial services sector|
|Professional services||UK qualifications no longer recognised at EU level||Professional qualifications recognised differently by individual Member States||Reduced growth in exports to EU|
|Mobility constrained||Eligibility criteria apply for business trips||Higher costs of delivery and reduced flexibility compared to EU suppliers|
|Patchwork of Member State requirements||Administrative complexity and cost discourages SME exporters|
|Transportation services||Road - exit from single internal transport market for hauliers (restricted cabotage)||British airlines and road hauliers now have no right to provide services within the EU, and limited rights for drop-offs and collections on trips from the UK||Commercial presences established in EU (e.g. easyJet in Austria)|
|Air - loss of single aviation area with full freedoms||Impacts on music industry and theatre groups (touring)|
There is little in the TCA that addresses financial services, despite it being a key UK export to the EU. Nevertheless, the UK and EU had said that they aimed to agree, by March 2021, a framework for regulatory cooperation. This would be done through a Memorandum of Understanding, which would be non-binding. This was eventually established in June 2023. It creates an EU-UK forum for dialogue at a high level that will meet at least semi-annually.
The EU has also granted the UK regulatory equivalence in one specific area: central counterparties. This expires on 30 June 2025, but could be renewed. However there would be no negotiation – it is purely an EU decision. The EU can also withdraw equivalence determinations at 30 days’ notice. The EU had also granted temporary equivalence settling Irish securities but this terminated on 30 June 2021.
For its part, the UK has implemented a Temporary Permissions Regime to support EEA-based firms operating in the UK with a passport. (There is no equivalent EU-wide scheme for UK firms operating in the EU.) However, some Member States, such as Ireland and Denmark, had established temporary permissions in specific financial markets.
UK nationals and EU citizens with UK professional qualifications need the relevant Member State to recognise the qualifications. This is done according to the Member State rules for the qualifications of third-country nationals. For UK citizens, this applies irrespective of where they qualified.
When the UK was an EU member, UK and EU citizens with a UK qualification were allowed to supply services across the EU. This covered doctors, nurses, dental practitioners, pharmacists, veterinary surgeons, lawyers, architects and engineers. For the affected professions, certain individuals may no longer be able to deliver services in certain countries in the EU. Some professions, like management consulting, are not regulated in this way and do not face this barrier.
The TCA envisages that the EU and UK may later agree mutual recognition of certain professional qualifications. This would be on a case-by-case basis and for specific professions. The UK may also reach separate bilateral agreements with individual Member State.
The WA protects the mutual recognition of professional qualifications for UK citizens who were living in the EU, or EU citizens who were living in the UK, before the end of the transition period.
Movement of people
Leaving the EU means loss of freedom of movement of persons across the EEA. For example, short-term business visits are limited to 90 days in any 180-day period. The list of activities permitted on visa-free trips is limited and means that some professionals such as musicians, artists, performers and journalists do not benefit. Beyond this list, the activities permitted and visa requirements vary by Member State.
Instead, there is a complex and expensive visa process facing EU citizens who wish to work in the UK and vice versa. This involves extensive red tape including the need for UK companies to track days (including non-work trips) spent in the EU to demonstrate that employees are within the 90-day limit.
Northern Ireland is treated differently. NI citizens are eligible to work in the EU, and study and receive healthcare in the EU.
|Table 16.3: Movement of people|
|New barriers - examples||Effects - examples|
|Movement of British citizens to EU||Visa needed for EU stays beyond 90 days||Border passport checks||Loss of right to work, study, live in an EU country|
|Comply with member state requirements||Delays and queues||Loss of freedom and opportunity|
|Inequalities in mixed families||ETIAS from 2024 - fee €7||Problems in delivering services in person|
|Queues at passport control|
|Movement of EU citizens to Britain||Complex visa system (time-consuming with additional costs)|
|Visa needed for stays beyond 180 days||Skilled Worker Visa (salary minimum £25,600)||Reduction in EU nationals working in UK – issues for NHS, Social Care, HGV drivers, vets, farm workers|
|Shortage occupation list (Feb 2022)||High potential individual visa||Reduced school trips to UK|
|UK family visa||Graduate visa||Serious staff shortages in hospitality|
|Frontier Worker Permit||Innovator visa||UK seen as uncompetitive with other EU countries|
Digital trade and data adequacy
Exports to the EU are supported by the TCA’s digital-trade provisions, which were welcomed as digitally-delivered services are increasingly important. Despite that, the UK is hostage to the EU renewing its temporary grant of data adequacy in 2025. Failure to renew would introduce hefty compliance costs and decrease competitiveness.
The EU granted the UK an “adequacy” decision in June 2021 that recognises British data protection standards as strong enough to allow EU citizens’ private information to flow freely between EU (and EEA) companies and the UK. The Commission adopted two adequacy decisions for the United Kingdom – one under the General Data Protection Regulation (GDPR) and the other for the Law Enforcement Directive. However, the Commission has said that it would “intervene” at any point if the UK deviates (or diverges) from the level of protection presently in place. The adequacy decision has a sunset clause and will expire in four years on 27 June 2025, unless it is renewed.
Participation in EU programmes
The UK may choose to pay to participate in Erasmus+ and Horizon. Discussions on Horizon are at an advanced stage but UK is dragging its feet.
|Table 16.4: Loss of access to EU programmes|
|EU programme to support education, training, youth and sport||Key EU funding programme for research and innovation||Europe’s global navigation satellite system, providing GPS under civilian control for citizens, businesses and military|
|€95 billion (2021-27)||28 satellites; 2 control centres|
|Loss of collaboration between UK and EU universities, companies and research organisations||Reduced funding for UK science, loss of partnerships with the best European scientists, and diminished international reputation for researchers||UK locked out of Galileo and European Geostationary Navigation Overlay Service (EGNOS) because of EU security concerns about UK as a third country
|Thousands of students can no longer experience other cultures, learn to communicate in other languages, or strengthen their sense of European identity through Erasmus+||UK squeezed out of many international collaborations in which it would have previously participated||UK can still use Galileo's public services, but has lost:
- access to Galileo/EGNOS data and technology developments
- access to encrypted capability reserved for EU members state militaries and governments (Galileo Public Regulated Service)
- input to governance and direction of Galileo development
|Loss of revenue from European students studying at British universities||European Research Council grants for British scientists and academic researchers cancelled||Reduced funding for British science from the European Space Agency which funds Galileo development|
|Turing Scheme is poor substitute:|
- only supports outgoing UK students.
- provides no funding for foreign students who wish to study in UK
- only provides funding for tuition and fees, if there is reciprocity from partner EU schools (which is negligible)
|Loss of access to talent pool of EU (and vice-versa)|
Scientists leaving Britain and it's more difficult to attract others to UK
|To substitute for Galileo, UK is now member of "space-based augmentation system" (UKSBAS) run by Inmarsat (funding for UK-only substitute rejected by government as too expensive)|
See also: Education, Science and Healthcare
Richard Barfield, Spotlight on Services, August 2023
Professor Sarah Hall, What does the Brexit trade deal mean for financial services? 27 December 2020
Professor David Bailey, The Brexit trade deal and automotive sector, 28 December 2020
HMG, UK involvement in the EU Space Programme, August 2021
Centre for European Reform, Sophie Besch, A Hitchhiker’s guide to Galileo and Brexit, May 2018
Brookings Institution, Why post-Brexit UK should rejoin the EU’s Erasmus+ exchange program, June 2022
HMG, Independent review of the research, development and innovation (RDI) organisational landscape: final report and recommendations, March 2023
The GB-EU border and implementing the Ireland/Northern Ireland Protocol remain big challenges. When it was clear that the UK government intended to leave the Customs Union and the Single Market, it was also plain that there would be a new UK-EU border. Some argue that this was known as early as January 2017. In late 2020, much still needed to be done and the government admitted that the UK’s new border arrangements would not be ready by 31 December.
The government initially published its Border Target Operating Model in July 2020, which was criticised as being too generic, and added more details in October 2020. The government added further details on 5 January 2021 and July 2022. The latest version (still draft) was published in May 2023.
Inevitably, the impacts of Covid-19 meant government and business needed more time to build infrastructure, recruit staff and ensure new IT systems are up and running. The government phased in new border checks and paperwork between January and July 2021. This reduced the initial burden on the 180,000 UK businesses who had to complete customs declarations for the first time (estimated by HMRC). These businesses did not have to meet customs requirements before, because they previously traded freely with the EU27 on the same basis as within the UK.
The relationship between Great Britain and NI, and NI and Ireland, is covered by the Withdrawal Agreement under the Northern Ireland Protocol.
Great Britain – EU
The ‘Border Target Operating Model’ sets out how the new GB-EU border will work for goods trade. The additional controls on food, and other animal and plant products that are still to be introduced, and which have been delayed five times are:
- Sanitary and Phytosanitary (SPS) checks currently undertaken at destination to be moved to a Border Control Post (BCP)
- Safety and security declarations on EU imports
- Health certification for further SPS imports
- SPS goods to be presented at a BCP
- Prohibitions and restrictions on the import of chilled meats from the EU
The latest expected timing (as of 29 August 2023) for introduction is:
- New paperwork – from 31 January 2024
- Imports of “medium risk” animal and plant products and “high risk” food of non-animal origin to be accompanied by health certificates
- Physical checks – from 30 April 2024
- UK customs officers will carry out “risk-based” physical and identity checks on these products at the border
- Documentation required
- Safety and security checks at ports – from 31 October 2024
- EU imports will need to be accompanied by safety and security declarations
It is not clear whether the physical and digital infrastructure to conduct these checks will be in place at the GB border (eg at Dover and Holyhead) on time.
Other features of the border arrangements already in place include:
- Customs declarations on all goods
- Goods Vehicle Management System (GVMS) – allows traders to file relevant paperwork to get approvals before crossing the border and avoid long delays.
- Operation Brock aims to manage traffic flows in Kent and mitigate the inevitable disruption (revived from 2019 ‘no deal’ preparations). Operation Brock includes:
- Large lorry parks in Kent.
- Digital ‘Smart Freight Service’, to check if hauliers have the right paperwork before they can proceed.
Great Britain – Northern Ireland
For the EU, GB is simply a third country, which means NI becomes a high-risk channel for illicit or sub-standard imports. Strict border management systems are essential at the GB-NI border and inevitably disrupt trade.
Under the WA, goods moving from GB to NI must comply with EU law on customs and regulation. The Protocol on Ireland/Northern Ireland keeps NI in the EU’s single market for goods and the EU Customs Union, so that NI continues to apply EU rules as they relate to customs, trade, production and the regulation of goods. From 1 January 2021, NI trade across the Irish border and with other EU countries continued on the same terms as before: no customs procedures, infrastructure or regulatory checks on goods being exported to the EU, including across the Irish border.
At the GB-NI border, new UK-EU trade frictions occur. With the TCA, goods entering NI from GB, require:
- Import declarations and safety and security certificates;
- Export Health Certificates and SPS (sanitary and phytosanitary) checks – for animal and plant products.
In February 2020, Michael Gove, Chancellor of the Duchy of Lancaster, announced that the UK would be implementing full checks at the GB-NI border at the end of 2020. The government has also announced a new ‘Trader Support Service’ to help reduce the burden of new customs rules – which will include carrying out some paperwork on their behalf. However, businesses in NI were still calling for more detail about how the GB-NI border would work.
It was unlikely that the Northern Ireland Protocol and the GB-EU border would be operational before the end of 2020. Representatives from the customs and logistics industry wrote to Michael Gove setting out serious reservations about the government’s lack of progress. The government faced enormous tasks to ensure the systems and necessary plans were in place, and to convince industry that they would be.
Windsor Framework – refines NI Protocol
The Windsor Framework (adopted on 24 March 2023 by the Withdrawal Agreement Joint Committee) covers a range of refinements to the operation of the Northern Ireland Protocol in the WA. These help reduce the level of checks on goods trade and will be phased in by 2025.
- Goods going from GB to NI divide into those for NI (green lane) and those going to Ireland and the EU single market (red lane).
- Companies that use the green lane and register for a trusted trader scheme have greatly reduced customs paperwork (September 2023).
- Goods in the red lane go through full customs, food and animal health checks.
- For agri-food the EU accepts UK public health standards, so fresh meat and other goods are allowed to enter NI.
- These goods must carry “not for EU” labels, to be introduced between now and 2025, when only 5% of shipments will be subject to identity checks.
- Seed potatoes and plants banned from being imported to the EU, because they might carry disease, can now be shipped to NI with a special plant health label (September 2023).
- UK has agreed to share customs data with the EU (close to real time) in order to spot evidence of fraud and take remedial action if necessary (September 2024).
- Parcels to friends or family and online deliveries from GB will not require customs paperwork (2024).
- Businesses using approved parcel carriers will have simplified customs procedures (2024).
Other refinements include:
- Medicines approved for use in the UK can now be sold in NI even if not yet approved in EU (2025).
- Pets travelling from GB to NI only need a simple travel document and owner’s declaration, and no longer need to be micro-chipped.
- Allowing NI to adopt domestic VAT rate changes (May 2023)
- Subsidies (state aid)
- Stormont Brake to allow NI possibility of objecting to EU rule changes requiring the UK and EU to discuss them before applying them.
- If NI still decides not to apply the rules, the Commission could apply remedial measures.
Looking to the future
The first five-year review of the implementation and operation of the TCA takes place in 2026. It is not a renegotiation but may lead to some improvements.
Refining the operation of the TCA will only bring minor economic benefits to the UK. It is hard to estimate by how much, but it would be less than what could be achieved by rejoining either the Customs Union or the Single Market. Purely as an indication, the chart below estimates the potential benefit at £12 billion of GDP by simply taking roughly half that of Customs Union membership. This, in turn, is assumed to be about one quarter of the value of rejoining, based on estimates of the impacts of non-tariff barriers.
The major economic benefits (and removal of most Brexit harms to the UK) of around £100 billion of GDP would only come from rejoining the Single Market and the Customs Union (based on the OBR estimate of the economic cost of Brexit with the TCA).
Figure 16.5: Estimated benefits of reforms to UK-EU trade relationship
A blueprint for policymakers
In May 2023, the UK Trade and Business Commission (UKTBC) published “Trading our way to prosperity: A blueprint for policymakers”. The UKTBC is led by Rt Hon Hilary Benn MP and Peter Norris. Since it was established in 2021, UKTBC has been working to understand how the UK’s new trading relationships are impacting businesses and different sectors of the UK economy.
The Blueprint details 114 actionable recommendations designed to enhance the UK’s trading relationships and foster business growth.These are the result of extensive research and evidence gathering.
The UKBTC has gathered evidence through:
- hosting 38 evidence sessions
- performing site visits
- taking over 80 hours of live testimony from 234 expert witnesses, industry leaders and business owners
- receiving written evidence submissions from over 200 organisations as part of an open consultation.
Much of this material is available on their website. Best for Britain provides the secretariat.
UK Trade and Business Commission, “Trading our way to prosperity: A blueprint for policymakers”, May 2023
Political and policy considerations
There is now a clear majority of public opinion in favour of rejoining the EU (see section on Opinions of Brexit). Unfortunately for rejoiners, less than 10% of adults currently see Brexit or UK-EU relations as the most important issue.
For this to change and to rejoin the EU, four main things (in my view) need to happen:
- Repair UK–EU relations
- Build confidence of EU in UK
- Cooperate with EU on major issues
- Define long-term UK trade and investment goals
- Develop trade roadmaps for UK to rejoin (accede to) EU
- Enhance UK trade in line with long-term goals
- Sustain shift in UK public opinion and build support for rejoining in UK and EU
- Demonstrate benefits to UK citizens, politicians and businesses
- Demonstrate benefits to EU
- Create sense of political urgency